GUIDELINES FOR MANAGING

CONFLICTS OF INTEREST

Luís de Sousa, University of Aveiro, Portugal and Chairman of TI-Portugal, e-mail: lmsousa@ua.pt

Context

Context

What is the public interest?

How clear is the distinction between the State and

the market?

How clear is the distinction between official duties

and personal obligations?

How clear is the segregation of functions in the

public administration?

Concept

Conflict of interest ≠ Corruption

“[A] conflict between the public duty and the private interest of a public official, in which a public official’s private-capacity interest could improperly influence the performance of their official duties and responsibilities.”

(2003 OECD Guidelines for Managing Conflicts of Interest)

“Corruption is the abuse of entrusted power for private gain.”

(Transparency International)

CoI

Traffick on influence

Unlawful acquisition

of an interest

Corruption

Favouritism Insider trading

Abuse of company

assets

Abuse of privileged information

CoI and related criminal offences

Unlawful taking of interest

In some countries, in particular those with a French penal tradition, conflicts of interest tend to be addressed in a very legalistic way.

It is forbidden for a politician or a public official to acquire or receive an interest or equity stake, or take custody thereof, either directly or indirectly, in any business transaction for which he is responsible.

Influence peddling

Influence peddling is the illegal practice of using one’s influence in government or connections with persons in authority to obtain favours or preferential treatment for another, usually in return for a payment

This practice is similar to corruption and often involves individuals (brokers) that trade privileged information and influence

Pulling strings

Some forms of influence peddling may be off the radar for judicial authorities as they do not fit the definition of “trading in influence”

Pulling strings is very pervasive in some countries: it is practiced by everybody at all government levels

Source: Global Corruption Barometer 2013

Legal/institucional corruption

Conflicts of interest are also associated with the concept of legal or institutional corruption

What is legal corruption?

Legal or institutional corruption is where the institutional decision-making mechanisms are captured by economic interests in order to create rents through the manipulation of public policy and market regulation for their own benefit and by transferring the costs and hazards of this public dealing to the taxpayer

Source: Global Corruption Barometer 2013

Revolving door

The revolving door is a symptom

of the blurring of the

public/private divide

This is about private businesses

offering highly-paid post-office

jobs to government officials, MPs,

members of regulatory bodies,

or senior public officials with

managerial capacity in exchange

of privileged access to inside

information about on going and

future government deals,

influence over

legislation/regulation, undue

advantage in public projects and

contracts, etc.

Lobbying and consulting

Outside employment is barred in many countries for conflict of interest reasons

Many political or senior public officials have a regular and close relationship with lobbying or consulting firms

Some give paid advocacy to multiple clients relating to their parliamentary or regulatory work

This industry has grown parallel to the increased regulatory function of the State

CoI Dilemmas

VÍDEO & DEBATE

http://www.youtube.com/watch?v=xnRpMQvW_ow

Types of conflicts of interest

In terms of their intensity

Apparent – a situation in which the elective or public official

has a private interest which is such as to appear to influence,

the impartial and objective performance of his official duties

Potential – a situation in which the elective or public official

holds private interests that may influence, the impartial and

objective performance of his official duties in the future

Real – a situation in which the elective or public official is in a

position to be influenced by his private interests when doing his

job

Different types of CoI

Apparent Potential Real

Resolution

Impropriety

Pecuniary interests

Pecuniary interests involve an actual or potential financial gain.

These can derive from three situations:

Managing business from inside: marketization of discretionary authority, privileged information and expertise;

Managing parallel business: using insider knowledge and experience to launch private business in the same sector or to sell to private actors wile in office;

Managing business after departure: revolving door/pantouflage, taking employment or positions in companies or CSOs in the same sector which previously fell under his/her supervision or regulation.

Non-pecuniary interests

Non-pecuniary interests do not have a financial component, but

still involve a breach of duties

They may arise from personal or family relationships, or

involvement in sporting, social or cultural activities.

Facilitation of administrative procedures (deadlines, requisites, etc.) to a friend without benefiting financially

Nepotism in recruitment procedures

“Pulling strings” inside the organization on behalf a family member to get him a service or benefit he is not entitled to

Bias is making decisions or treating citizens

Risk areas

•Secondary jobs

•Anticipated retirement schemes to open private businesses in the same domain of activity

• Recruitment of experts or board members to regulatory bodies from major companies/banks falling under its supervision

•MPs sitting in strategic committees while holding jobs as consultants in major law firms and consultancies

•Paid advocacy

• Revolving door system (Ministers and Junior Ministers)

• Traffic of influence by advisers and junior cabinet members

DECISION-MAKING LEVEL

LEGISLATIVE LEVEL

ADMINISTRATIVE LEVEL

REGULATORY LEVEL

NIS Findings: Major CoI practices detected at different governance levels

Low compliance with declaratory obligations (register of interests and

assets disclosure)

No triangulation of data

No oral or written disclosure of interests prior to entering public business

Patchy regulatory framework and dispersion of control mechanisms (three

declarations; three monitoring bodies; three universes of analysis)

Format, composition and mandate of the Ethics Commission is inadequate to

monitor CoI in public affairs (in particular privatizations, PPP, and

concessions)

No reporting of decisions and disciplinary sanctions

No proper enforcement of three-year quarantine period for Ministers

Junior ministers, advisers and cabinet members are exempt of any sort of

control and yet they have access to all the information concerning the

decision-making process

NIS Findings: Most common issues related to CoI Regulation and Supervision

Managing CoI

Why should we bother?

Conflicts of interest compromise the achievement of organizational objectives

Damage the image/reputation of objectivity and impartiality of public institutions

Lead to a breakdown of trust in public actors and institutions.

WH

AT C

AN

I DO

?

Four-ste

p p

roce

dure

to

hand

le a

CoI

Get acquainted with the rules and norms governing your office

Ponder whether your colleagues and the public at large would approve your conduct

Seek professional advise or counselling

If you feel internal disclosure is likely to be inconsequent or trigger reprisals, seek

disclosure to an external entity

WHAT CAN MY ORGANIZATION DO?

Five dimensions of CoI Management

Recruitment and career policy

Guidance

Control

Leadership

Public scrutiny/involvement

Four approaches at mitigating CoI

avoidance disclosure

divestment recusal

mitigating CoI

Most common CoI control measures

Rules of Disclosure

Assets declarations

Registers of interests

Gifts & hospitality rules/registers

Incompatibilities/impediments

Restrictions on additional employment

Restrictions of outside concurrent appointments (e.g. party positions,

football club, CSO)

Restriction of post-office business/CSO jobs or activities

Other business restrictions

Restrictions on using official/inside information for personal purposes

Personal and family restrictions on property titles of private companies

Divestment either by sale or the establishment of a trust or a blind

management agreement

CoI management policy

Establish the context

Identify risk factors

Detect specific occurrences and evaluate seriousness of impact

Analyse occurrences

Respond to conflict of interest

Disseminate CoI management policy at workplace

Always take on board external perceptions

Act in a timely, prudent but decisive manner

Beware of deceiving analogies

Concluding remarks

CoI is an organizational problem and needs a management policy

It is not sufficient to have a dedicated CoI law, but to implement a CoI management framework

Leadership support for CoI management policy needs to be assertive and consistent

Apparent, potential and real CoI need systematic monitoring

CoI management framework should always involve the public

“Forget private interests, concern yourself

with public affairs”

(Latin inscription above the doorway leading from Dubrovnik's 15th-

century Rector's Palace into the Town Hall)

OBLITI PRIVATORUM PUBLICA CURATE